State lawmaker Ted Lieu plans to introduce legislature today that would ban certain so-called exotic loan programs in California, and help homeowners more easily refinance into more traditional, fixed mortgages.
Lieu released details of his proposal to the Associated Press, which include a ban on “stated-income loans” and negative-amortization loans, also known as option arms.
His bill would also allow borrowers currently stuck in subprime and adjustable-rate mortgages to refinance without being subject to a costly prepayment penalty.
Lieu noted that despite an effort by mortgage lenders to toughen underwriting guidelines, most still aren’t up to the standards set forth by the government.
“The mortgage crisis no doubt shows what happens when you have inadequate regulations,” said Lieu, Chairman of the Assembly Banking and Finance Committee.
Like many other proposed laws before his, his plan would also prohibit mortgage brokers from earning yield spread premiums for steering borrowers into higher-rate loans.
Lieu was been an outspoken critic of the mortgage industry, criticizing Hope Now for doing little to stem the recent surge in foreclosures, saying the Bush Administration must devise a plan that will actually make a difference.
He has also proposed that borrowers receive more financial literacy information and wants to boost the number of housing counselors available to assist at-risk homeowners.
The news comes as data released yesterday revealed that foreclosures hit a 20-year high and defaults in California struck a 15-year high, suggesting that more must be done to ensure borrowers actually qualify for the loans extended to them.
California has been one of the most hardest-hit states subjected to the real estate bust, leading the nation in foreclosure filings.
Schwarzenegger Calls for Conforming Loan Limit Increase
In related news, Governor Schwarzenegger wrote to congressional leaders, urging them to increase the conforming loan limit in California to ease lending restrictions.
“In a state where the average price of a home far exceeds that loan limit, Californians find themselves priced out of the very help these loans are intended to provide,” Schwarzenegger wrote in the letter.
“When combined with the withdrawal of the jumbo loan market, it’s no surprise that current home sales activity in California is half the pace seen in 2006,” he added.
“Lifting the GSE loan limit in these areas would help put affordable home purchase and refinancing options within their reach,” the governor said.